Mounting NPAs: What Went Wrong (WWW)? Part-4: Political Compulsions & Corruption

In addition to the factors analysed in previous posts responsible for disaster in the Banks in the form of NPAs and Stressed accounts i.e. a)Fast development of Banking industry; and b) Sudden Growth in Indian Economy, I would like share my views on one more major cause that led to huge losses to the Banks. This important factor was “Political Compulsions and Corruption”. Congress Government under the leadership of Mr. P.V. Narsimha Rao introduced liberalization to the economy. It was major turning point for the country and helped a lot to this party in ruling the country. They were encashing this very meticulously by branding other parties either communist or dumb in economics.

Under new environment of liberalization, the economy was taking new shape and offering lot of opportunities to the domestic and overseas players. The volume of money was too much and luring the people from all walks. Political parties had started looking at economics as intelligent and smart players. They understood their importance in policy framing, decision making, appointments and fund raising. They started interfering in banking systems, guiding and helping the business community in sourcing finance. These activities were root cause for rampant corruption in the system.

Then in 1999, NDA Govt. came under the leadership of Mr. Vajpayee who inherited the fast growing economy and huge opportunities to develop. Infrastructure was the focus and huge investment was required in Infra, Power and Telecom, which would not have been possible without government support. These developments somewhere not only forced the banks to lend aggressively but also liberally. It was the beginning of corruption and defaults too. The surprise exit of NDA made the new UPA government overconfident. The power to new group was for next 10 years. The failure of opposition parties to control the ruling parties (may be some nexus, I don’t know) was quite visible. It was the public at last who threw away this group from power and again gave opportunity to NDA under Mr. Modi.

Thus developments from 1999-2013, Interference of political parties in lending money, appointments and policy making resulted into sharp increase of lending. This was not done judiciously and hence huge chunk of lending became non performing. Bureaucrats and politicians for their personal benefits put the banks in big problem. Corruption was rampant, we can’t deny its existence today even, which to a great extent is the major factor responsible for NPAs. Compulsion of moving fast and feed the requirement of funds to the economy also lured for lending very liberally.

Government should give serious thought before giving money to the Banks and ensure that necessary precautions are taken as this is poor public’s money which has been given in past too. In fact, large part of such infusion drains out in due course and again the demand for more infusion is raised by the Banks. It gives me the memories of Ram Leela where in Kumbhkaran demands continuously huge quantity of food after waking up. Better the Government wakes up at least now and control this drainage of funds.